Ok, so Wednesday was all about taxes and although stocks initially knee-jerked lower in what looked like a “sell the news” moment as the 9-pager from the GOP and Trump leaked, risk recovered – and then some.
Best day for the Nasdaq (which you’ll recall as been underperforming of late) in more than a month:
Here’s all you need to know about the tax plan:
- TRUMP SAYS HIS TAX PLAN `NOT GOOD FOR ME, BELIEVE ME‘
Sound familiar? It should…
Just give him the benefit of the doubt, will you? What could go wrong?
As Bloomberg notes, Treasurys “maintained overnight losses during the U.S. session, with the curve steepening sharply, sparked by large futures block trades. 5s30s ended session wider by 4bp, paring around half of last week’s post-FOMC flattening move.” So “reflation” is apparently back, although as noted earlier today, the curve still looks like folks are a little nervous about the long-term prospects. Here’s a snapshot of 10Y yields and the dollar going back to the Fed:
There is probably a short squeeze afoot in small caps:
And if you look at a YTD chart, there’s still some catching up to do:
That speaks to what certainly looks like the return of the “Trump trade” (which was left for dead until recently). You can see the rotation:
The stronger dollar, the prospect of a more hawkish Fed, and the possibility that Trump’s growth-friendly fiscal agenda isn’t completely dead after all are all weighing on EM, as currencies and equities come under pressure with the latter in the midst of a 5-day slide, the worst stretch since May 2016. As you can see from a YTD chart, we were long overdue for a correction here:
Same thing in FX:
Oh, and spreads are widening:
Still, growth differentials could provide a pillar:
It’s probably worth noting that the lira looks like it’s in trouble:
Gold’s sitting near one-month lows as rate hike bets and tax hope buoys the dollar:
Oh, and lest North Korea should slip your mind, the Kospi was down again on Wednesday – that’s 7 days in a row, but who’s counting, right?
Finally, geopolitical risk is most assuredly not your friend…